For 2020, we expect continued volatility and a mixed bag of outcomes. On the plus side: low risk of a policy mistake, no autopilot on the normalization of interest rates, and continued health of small business balance sheets across most industries. We also expect the pause in rate hikes to continue absent a systemic shock to the economy. But there are some troubling economic signs. We see an increased chance of a slowdown or even recession in H2, which makes tax cuts or fiscal stimulus more likely. On the other hand, historically, recessions are unlikely during election years and markets tend to rally. With rates tracking as low as they are now and with the lack of sufficient dry powder, the Fed is somewhat hampered in its ability to respond to challenges. This could complicate the Fed’s ability to navigate the economy through a slowdown. Against this backdrop, we see domestic politics as a big wild card, namely, the upcoming national election and the unpredictable nature of the Trump presidency, in this very polarized environment where media outlets are promoting views at the extremes. Add to that the unsettled geopolitical picture, particularly concerning trade with China and the potential for escalation in the Middle East, and we see a period with a heightened risk of exogenous shocks, all of which create uncertainty for the economic picture going forward. Indeed, one such event arose last month: the coronavirus pandemic. Still, we anticipate Old Hill Partners’ asset-based lending (ABL) strategy, with its history of uncorrelated, attractive risk-adjusted returns, will be able to navigate these choppy waters.
For a full version of Old Hill Partners Private Credit 2020 Outlook, click here.